After Microsoft Corporation (NASDAQ:MSFT) announced the purchase of Nokia Corporation (ADR) (NYSE:NOK)‘s Devices & Services business, and some licenses for the firm’s patents, its stock started to plummet. Shares fell more than 6.5% over the last 2 days. However, opposite has been the case at Nokia Corporation (ADR) (NYSE:NOK). Its stock is up 40% since the decision got public, and the uptrend continues.
Microsoft Corporation (NASDAQ:MSFT)’s acquisition comes across as a “bailout” for Nokia Corporation (ADR) (NYSE:NOK)’s struggling handset business. Without this weight, Nokia seems poised to perform better, and the market has reckoned this. The company’s remaining businesses – wireless infrastructure, mapping and IP- should provide wider stability and predictability, as well as stronger cash flow generation capabilities.
In addition, the $7.2 billion income will largely benefit shareholders, who were facing much poorer prospects before the offer. After divesting its handset segment, the company will not only be more stable, but also solve its cash issues. In fact, cash should not be a concern going forward as licensing payments from Microsoft Corporation (NASDAQ:MSFT) for Nokia Corporation (ADR) (NYSE:NOK)’s IP will provide a stable income flow, while its remaining segments continue to grow and gain efficiency. I feel especially optimistic about the acquisition of Siemens AG (ADR) (NYSE:SI)‘s 50% stake in the Nokia Siemens Networks (NSN) wireless infrastructure equipment joint venture. This certainly bodes well for Nokia Corporation (ADR) (NYSE:NOK)’s wireless business, which is expected to be the core of the company –and growth driver- going forward.
Nevertheless, some uncertainties also derive from this purchase. For starters, its CEO, Stephen Elop, will leave the company along with its devices business. A new CEO is yet to be named, and a new business strategy is yet to be thought and implemented. Until this information is made public, certain risks cannot be dismissed. One of my main concerns revolves around Nokia Corporation (ADR) (NYSE:NOK)’s HERE location services business, which continues to generate substantial operating losses and still faces very strong competition from Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG).
Whatever the outcome, the bets are getting higher and it looks like it’s time to decide: will you be on this ship or will you let it set sail?
Disclosure: Javier Hasse holds no position in any stocks mentioned